Recovery in Europe hinges on consumers

PARIS - As Europe makes a wobbly recovery based largely on selling goods overseas, the key question for its economy is: Are shoppers at home ready to start spending again?

Growth in the 16 countries that share the euro was just 0.2 percent in the first quarter, and analysts say the recovery can only really take root if consumers in France, Germany and elsewhere forget their fears of unemployment and more turmoil - and open their pocketbooks.

Second-quarter data to be released today are widely expected to show a modest acceleration, thanks to strong export-led growth in Europe's economic engine Germany. The figures will show eurozone growth rebounded to 0.8 percent quarter-on-quarter in the April to June period, estimates Jonathan Loynes, chief European economist at Capital Economics.

While the second quarter is expected to be strong, forecasts dwindle for the second part of the year. Can consumers help Europe continue its modest bounceback from the recession and a government debt crisis that saw Greece saved from bankruptcy by an international bailout in May?

Indicators are giving uncertain readings of consumer willingness to spend, leaving the recovery on a knife edge.

Overall retail spending in the eurozone was flat in June after rising slightly in May, according to EU statistics office Eurostat. France was among the worst performers, falling 1.3 percent compared to the previous month. This can partly be blamed on a shift of France's traditional summer sales period to July from June.

French shoppers' penchant for spending freely on the country's fine foods and fashions has long been the motor of economic growth in France, much more so than in neighboring Germany, where global trade and exports power the economy.

Jean-Claude Amer, shopping at the BHV department store in central Paris, is ready to do his part.

"Spending money is what I do," said Amer as he walked out of the store into the trendy Marais neighborhood.

The 63-year-old retiree said the crisis has not put a crimp in his spending ways. "Not at all. I love to buy tech gadgets. I just bought some home electronics," Amer said.

Spending in large retail chains, such as Carrefour, Casino or Monoprix, has risen in the first half of the year according to an upcoming report by retail consulting firm Symphony IRI.

"Shoppers have what we call 'frugal fatigue,' " said Jacques Dupre, an analyst at Symphony IRI and the report's author. After months of cutting back and substituting generic or lower priced products, shoppers are starting to fill their carts with more expensive options once again.

The researcher forecasts growth of between 1 and 1.5 percent in retail spending at supermarket chains in the second half, after 1.2 percent in the first six months of this year.

"But people are very reactive to shocks - if in October there are new rounds of layoffs or higher unemployment, it could quickly go much lower," Dupre said. "So the recovery is real but relatively fragile."

Another BHV shopper, Oliver Penin, says the economy will have to improve without any extra help from him.

"I'm not changing my habits one iota," Penin said. The 55-year-old engineer had just picked up a few small plumbing supplies to fix his sink. "Crisis or no crisis, I spend my money the same way."

by Greg Keller Associated Press Aug. 13, 2010 12:00 AM



Recovery in Europe hinges on consumers